Oil prices hover near eight-week highs on lower US inventories

LONDON – Oil prices held just below eight-week highs on Thursday, supported by a steeper-than-expected decline in US crude inventories that boosted expectations of a shift to a more balanced market.

Brent crude futures dipped 9 cents at $50.88 a barrel at 0950 GMT, after rising about 1.5 percent in the previous session. US West Texas Intermediate futures slipped 6 cents at $48.69 a barrel.

US crude stocks fell sharply last week as refineries increased output and imports declined, while gasoline stocks decreased and distillate inventories dropped, the Energy Information Administration said on Wednesday.

The 7.2 million-barrel drop in inventories in the week ended July 21 was much more than the 2.6 million barrels forecast.

“As encouraging as this may seem, the price recovery won’t begin in earnest until evidence of U.S. oil rebalancing is mirrored on a global scale,” Stephen Brennock at oil brokerage PVM said referring to the drawdown in oil stocks.

Expectations that the long-oversupplied market is moving towards balance were also supported by this week’s news that Saudi Arabia plans to limit crude exports to 6.6 million barrels per day (bpd) in August, about 1 million bpd below the level last year.

Kuwait and United Arab Emirates, fellow members of the Organization of the Petroleum Exporting Countries, have also promised export cuts. US shale producers including Hess Corp, Anadarko Petroleum and Whiting Petroleum this week announced plans to cut spending this year due to low oil prices.

But some analysts say a slowdown in shale drilling may prove temporary. “Recent evidence of a slowdown in US upstream activity has been exaggerated and will if anything be transitory,” Brennock said. “Instead, a strong finish to the year is on the cards with the advent of $50 a barrel safeguarding the rebound in US tight oil supply,” he added.

US fuel exports are on track to hit another record in 2017, making foreign fuel markets increasingly important for the future growth prospects and profit margins of US refiners.

In a sign Europe’s major energy firms are turning a corner after a three-year slump, Royal Dutch Shell, France’s Total and Norway’s Statoil reported sharp increases in cash flow from operations in the second quarter.

Profits for the three companies beat analyst expectations, meaning they can all comfortably pay dividends and reduce debt.